law of supply

The law of supply is the mirror image of the law of demand, seen from the seller's side: when the price of something rises, producers want to make and sell more of it; when the price falls, they make and sell less. A higher price is a bigger reward for the effort, so it pulls more goods onto the market. If the price of strawberries jumps, farmers plant extra rows, pickers work longer, and shops devote more shelf space; if the price collapses, some farmers leave the strawberries to rot rather than pay to harvest them. Price and quantity supplied move in the same direction — a positive, or direct, relationship.

Why should higher prices coax out more goods? Because making the next unit usually costs more than the last — the easy, cheap output comes first, and squeezing out extra means overtime, pricier inputs, or less efficient methods. So a producer only finds it worthwhile to make those costlier extra units if the price is high enough to cover them. Suppose at 2 dollars a farmer happily supplies 100 crates, but the 150th crate costs 2.50 to produce; the farmer will only bother with it once the market price reaches 2.50. As before, this holds "all else equal" — technology, input prices, and the number of sellers staying put.

The law of supply is why the supply curve slopes upward, and together with the demand curve it pins down the market price. It is a touch less ironclad than the law of demand: over very short periods supply can be almost fixed (a hotel has only so many rooms tonight, no matter the price), and for a few odd goods — a fixed stock of original Rembrandts, say — more cannot be made at any price. But as a general rule about how sellers respond to reward, it is one of the bedrock building blocks of how markets work.